A Novel Method for Decomposing Transmission Losses for Electricity Markets

Shangyou Hao and Fulin Zhuang


Electricity Market Modeling, Energy Economics, Transmission Losses, Locational Marginal Prices (LMP)


This paper presents a novel method for decomposing and allocating transmission losses for the RTO electricity markets. The method divides the system transmission losses into incremental loss buckets obtained at different loading levels, and allocates each incremental loss bucket to bus locations. The allocation is based on the optimal marginal loss sensitivity factors computed at the corresponding loading level. Mathematically, the proposed method is inspired by the numerical integration techniques used for integrating the nonlinear losses by incremental steps. This method can be employed to eliminate over-collection of transmission loss costs in many LMP based electricity markets and reduce cost shifting. Simulated examples are presented in this paper to illustrate the application of the proposed method.

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